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The province of British Columbia is betting heavily on liquefied natural gas for its future, with Premier Christy Clark vowing the province will have three LNG plants by 2020. The reason: Gas exploration and development could mean big bucks for provincial coffers.

B.C. used to rely on forestry as its economic driver. But gas took over in 2003-04, when natural gas royalties were $1.2 billion, compared with forestry revenue of $1 billion. Gas royalties peaked in 2005-06 at $1.9 billion, when gas prices spiked as high as $15 US per million British thermal units. That income doesn’t include land rights to explore for and extract the gas.

According to the province’s Natural Gas Strategy released in February, in 2009-10 total natural gas revenue in B.C. generated $1.35 billion, $406 million of which came from royalties. That made up almost 60 per cent of the province’s direct revenues from resources and four per cent of total revenues. In 2005-06, when gas prices were much higher than they are now, the province took in $2.6 billion.

With the discovery over the past few years of unconventional gas fields, also known as shale gas, it is estimated that B.C. has more than 1,200 trillion cubic feet of gas in place. To put that in perspective, B.C.’s natural gas production is 1.2 trillion cubic feet a year.

The province is sitting on so much gas, it could supply North America for the next 100 years, said B.C.’s Minister of Energy and Mines Rich Coleman.

But the new discoveries, along with similar finds in the United States, have led to an oversupply in North America, pushing down the price in April to a decade low of below $2 US, Scotiabank’s commodity market specialist Patricia Mohr wrote in a report.

But while North America is flush with gas, Asia needs it, pushing up the price of LNG coming into Japan to $16.57 US in March, Mohr said.

B.C. is banking on that price differential. But to ship its abundant gas to Asia, it needs to liquefy it for transportation — hence the push to get LNG plants operating as soon as possible. The first major LNG plant — Kitimat LNG, a joint venture of Encana Corp., Apache Resources and EOG Resources — is expected to be shipping gas by the end of 2015 or early 2016. A smaller joint venture between the Haisla First Nation and Houston-based LNG Partners LLC could be shipping as early as 2014.

But B.C. isn’t the only jurisdiction seeking to ship LNG to Asia, and as more supply reaches that continent, the price could drop, too.

Regardless, Coleman believes the price will still be much higher there than in North America.

“If you had $5 to $7 gas, British Columbia would be swimming in cash to be able to do things people are asking us to do,” Coleman said.

“[If] you want to pay for health care and education and you want a balanced budget and you want to have the other opportunities for British Columbians, you need this industry, frankly, to be able to pay.”

Gas safer to transport

In its liquefied state, natural gas is much less controversial to transport than oil, so the industry does not attract the same opposition as Enbridge is facing for its proposed $5.5-billion oil pipeline across northern B.C.

If oil leaks, it sinks and stays in the ground, Coleman said. LNG, on the other hand, will gasify and evaporate.

That doesn’t mean LNG is without controversy. But most concerns are centred around the extraction of shale gas, which is released through a process of hydraulic fracturing, or fracking. This is done by forcefully pumping chemically treated water underground to break up the rock and free the gas.

Many jurisdictions, notably Quebec, New York state and France, have moratoriums on fracking, which has been blamed for tainting drinking water and causing mini-earthquakes.

It’s too early to tell whether the same effects will be realized in B.C., said Ben Parfitt, resource policy analyst with the Canadian Centre for Policy Alternatives.

Gas prices are so low that the province has yet to see full-scale development of shale gas.

As well, much of the fracking in B.C. is in large areas with small populations, unlike in the U.S., where fracking is done in more densely populated locations, he said.

But Parfitt has other concerns about fracking, such as the amount of energy and water needed to extract and liquefy the gas and the economics of rushing into three new LNG plants.

Extracting shale gas uses extraordinary amounts of water, with one operation using the equivalent of 600 Olympic-size swimming pools — 1.5 million cubic metres of water — to release it, Parfitt said. While Encana Corp. uses water drawn from deep salty aquifers, most companies use fresh water.

“Once this water is drawn out from lakes, rivers and streams, it can never be returned to the environment again because it is too toxic,” Parfitt said.

And once the gas is extracted, cooling it to turn it into liquid — which is how the LNG plants work — takes enormous amounts of power, he said.

It is estimated, for example, that Kitimat LNG will require eight to 10 per cent of B.C.’s domestic electricity production. Three LNG plants relying on electricity from B.C.’s power grid would swallow up 25 per cent of domestic production, he said.

“What this means is there are going to be significant strains on our hydro system,” Parfitt said.

“And in some cases, we are now removing [water] from the very reservoirs that are used to generate power and the companies that want to use that water in the fracking process also want access to our power. So it’s a double whammy.”

Shale gas ‘dirty’

Premier Clark has acknowledged the LNG plants will have to use some gas-fired electricity, a big move away from the province’s clean-energy strategy.

And while burning natural gas may be cleaner than burning coal, greenhouse gases associated with the production of shale gas in the province are poised to double by 2020, Parfitt said.

“When all emissions associated with fracking and its aftermath are factored in — including methane and CO2 releases — shale gas may well be as dirty as coal,” he wrote in a paper released last November.

Lots of countries are lining up to ship LNG to Asia, including Qatar, Australia, Russia and the United States, because of the price differential, Parfitt said.

“But it’s not a given that the price differential will be maintained when it appears now that there is strong evidence that countries like China are actually sitting on very large shale deposits of their own,” he said.

The NDP, however, supports the government’s plan to expand the gas sector.

“Everyone supports that,” NDP energy critic John Horgan said.

“It’s paying for health care, it’s paying for education.”

Horgan, however, is concerned about the amount of fresh water used in the fracking process. So the province needs a regulatory regime that manages water “and ensures that the industry pays its fair share,” he said.

Treaty 8 territory — the traditional territory of the first nations in northeastern B.C. who signed Treaty 8 more than 100 years ago — lies right over the western basin where the gas is located.

The treaty preserved the right of the first nations “to pursue their usual vocations of hunting, trapping and fishing” throughout the territory, except where needed for mining and other purposes.

Gas wells have been in the territory since the 1940s, said Liz Logan, tribal chief for the Treaty 8 Tribal Association, which represent five of the first nations.

Their water is already tainted by gas production, Logan said.

“It’s very sad in the territories when elders like my parents go out to their traditional camps and they can’t drink the water any more [and] they have to take bottled water.”

The association is not against developing the gas industry, as the “old economy of selling furs is not there any more,” Logan said.

“We’re not opposed to development because we need to make a living like everybody else,” she said.

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